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'Clients left out to dry': Dover collapse prompts calls for compo scheme
By John Collett & Mathew Dunckley
The collapse of Dover Financial Services has sparked renewed calls for a last resort compensation scheme to cover customers when their adviser's firm ceases to exist.
Dover owner Terry McMaster on Friday told the 400 or so advisers that operated under its banner that their coverage on Dover's licence would be removed immediately after the corporate regulator signalled it would cancel the licence. That meant advisers would have to cease giving new advice immediately and stop servicing the estimated 40,000 to 50,000 clients completely by the first week of July.
Professor Ian RamsayCredit: Josh Robenstone
If Dover goes into administration, clients that want to pursue their adviser for poor advice would become unsecured creditors without access to the Financial Ombudsman Service or other dispute mechanisms.
University of Melbourne professor Ian Ramsay headed a review for the federal government last year which recommended the establishment of a compensation scheme of last resort for victims of poor financial advice pointing to millions of dollars in unpaid compensation where a company would not pay up, sometimes because it no longer exists.
On Monday Professor Ramsay said it was clear that the “area of most immediate need in terms of last resort compensation is financial advice".
"When you go by the value of unpaid determinations, I think it is in excess of 90 per cent by dollar value of unpaid determinations is the financial advice area," he said.
The federal government has said it will await the outcome of the Hayne Royal Commission before deciding whether to support the review's recommendation.
CHOICE campaigns director Erin Turner said the plight of Dover showed why a scheme was needed.
"With Dover Financial closing its doors, anyone who has a current or future complaint against the company may struggle to get fair compensation. We've seen this before with financial planning," she said.
"This case highlights the need for a last-resort compensation scheme in the financial services sector. It's crucial that the financial system has appropriate protections so that anyone who has received dodgy advice gets a fair fix."
Maurice Blackburn superannuation and insurance principal Josh Mennen said the absence of a last resort scheme could "leave consumers out to dry" in situations like the one enveloping Dover.
This is a textbook example of why a scheme of last resort is desperately needed.
Maurice Blackburn's Josh Mennen
"This is a textbook example of why a scheme of last resort is desperately needed to give confidence to consumers that they are not going to be left in financial limbo when their adviser goes bust," he said.
Mr Mennen said it was very disappointing that the Ramsay review's recommendation had not been picked up by now.
Financial Services Minister Kelly O'Dwyer's spokesman did not respond by deadline. Shadow Treasurer Chris Bowen's office did not return calls.
The pending cancellation of Dover’s licence follows intense scrutiny before the banking royal commission last month. The Australian Securities and Investments Commission remained tight-lipped on Monday about any possible action against Dover or its planners, confirming only that its inquiries into the firm were ongoing.
It is believed Mr McMaster had sought until the end of the year to wind down his business but that ASIC had told him that his time was up. Mr McMaster declined to comment.
Paul Tynan, the chief executive of Connect Financial Services Brokers, which buys and sell financial services businesses, said the time-frame for the advisers to find another licence to work under is very short.
“It’s going to be a mad scramble by the advisers to find another licence-holder to work under,” he said.
“Four hundred advisers is a hell of lot. Those taking on the advisers would have to check them out and there a lot more things that need to be done that cannot be done in a matter of weeks."
Hamilton Blackstone Lawyers posted on social media that it was discussions with affected planners to see if there is a potential for a class action on behalf of the advisers against Dover.
As well as the roughly 400 financial planners under its licence, Mr McMaster also owns McMasters Accountants and Advisers, which acts for more than 1000 doctors, dentists and other medical professionals.
It is the administrator for more than 1200 self-managed super funds, making it one of the largest SMSF accounting firms in Australia.
Its website states that McMasters Accounting and Advisers, through McMasters’ (Vic) Pty, is a corporate authorised representative of Dover Financial Advisers.